Public Interest Legal Professionals and Student Loan Forgiveness: Reflecting on 2022 and Looking Forward to 2023
By Brian Fields, Attorney at Legal Aid Society. A shorter version of this article was first published in the February 2023 issue of the Louisville Bar Association’s Bar Briefs.
While over 42.8 million borrowers of all backgrounds navigated these complexities in 2022, the burden of high student loan debt often falls heavily on legal professionals. According to recent data, 71% of law students graduate with loans, with the average law school graduate owing $180,000 in student loan debt from higher education. This problem disproportionately plagues first-generation, lower-income, and non-white students. First-generation students are twice as likely as their non-first-generation peers to owe over $200,000, and Black students owe approximately $25,000 more on average than their white counterparts.
As of 2022, United States borrowers’ total student loan debt is approximately 1.75 trillion dollars.[1] The student loan debt crisis continues to create difficulties for countless Americans, with bureaucratic complexities and constantly changing rules preventing millions of Americans from accessing borrower programs and assistance they meet statutory requirements for. While over 42.8 million borrowers of all backgrounds navigated these complexities in 2022, the burden of high student loan debt often falls heavily on legal professionals.[2] According to recent data, 71% of law students graduate with loans, with the average law school graduate owing $180,000 in student loan debt from higher education.[3] This problem disproportionately plagues first-generation, lower-income, and non-white students. First-generation students are twice as likely as their non-first-generation peers to owe over $200,000, and Black students owe approximately $25,000 more on average than their white counterparts.[4]
This debt frequently impacts public interest attorneys and public servants. Many attorneys participate in the Public Service Loan Forgiveness Program (“PSLF”) Program, a program created under the College Cost Reduction and Access Act of 2007 to provide borrowers a way out of their federal student loan debt burden by working full-time in public service while meeting specified payment and employment criteria. As of 2022, almost 175,000 public servants have already had more than $10 billion in loan forgiveness approved via the PSLF program.[5] Many others would see a degree of relief through the executive forgiveness initiative by the Biden Administration, forgiving up to $20,000 of federal student loan debt for borrowers contingent upon specific financial criteria if upheld by the Supreme Court. Significant movement occurred in student loan law and policy in 2022, with even more significant changes coming in 2023. These changes will have a consequential impact on borrowers seeking relief from the crushing burden of student loan debt.
An Overview of the Public Service Loan Forgiveness Program
The Public Service Loan Forgiveness (“PSLF”) Program was a program passed as part of the College Cost and Reduction Act of 2007 (“CCRA”). While much of the CCRA focused on increasing funding for Pell Grants and reducing interest rates on federal loans, the bill also created the PSLF program. According to the legislation, “the Public Service Loan Forgiveness Program is intended to encourage individuals to enter and continue in full-time public service employment by forgiving the remaining balance of their Direct loans after they satisfy the public service and loan payment requirements of this section.”[6]
The statute lays out various requirements for forgiveness under the PSLF program. First, the borrower must maintain “full-time qualifying employment” with a public service organization for the period in which they make PSLF-eligible payments. While the scope of how the Department of Education interprets what constitutes a public service organization has changed in recent years, the statute generally defines them as one of the following: “A Federal, State, local, or Tribal government organization, agency, or entity,” “A public child or family service agency,” “a nonprofit organization under section 501(c)(3) of the Internal Revenue Code”, a Tribal college or university,” or any number of private organizations that provide the public services enumerated in 34 CFR § 685.219(v)(A). Private organizations that provide public interest law services are included on this enumerated list of qualifying types of public services.
In addition to working for a qualifying employer, borrowers must satisfy the following criteria: they must not be in default at the time of application for forgiveness, they must be employed full-time by a public service organization while 120 monthly qualifying payments are made, and must be on either an income-based, income-contingent, or standard repayment plans.[7] If the borrower satisfies these criteria, the statute directs that “the Secretary forgive the principal and accrued interest that remains on all eligible loans for which loan forgiveness is requested by the borrower.” However, various administrative carve-outs and exceptions to the rules have resulted in confusion and rejection of forgiveness applications. In 2017, ten years after the creation of PSLF and the earliest that applicants for discharge could have reached 120 qualifying payments, the program had almost a 98% denial rate of applications.[8] This number was comparable through 2021, with approval ratings of applicants for PSLF discharge remaining below 2.5%. [9]
Even the American Bar Association challenged PSLF rejections and pushed back on ambiguity, suing on behalf of ABA employees who received certification that the ABA was a qualified employer from the Department of Education, which then rejected their discharge applications years later on the basis that the ABA did not meet the criteria as a qualified employer.[10] While the ABA ultimately reached a settlement with the Department of Education and the ABA employees did receive their PSLF discharge, countless other public interest employees have had to navigate the complex issues surrounding the current structure of PSLF and the possibility that after a decade of public service, there is still a high likelihood that they get denied. For this reason, consumer advocates have pressed for significant changes in PSLF and broader student loan policy, with many coming in the last year.
Significant Changes to Loan Discharge Programs in 2022
Significant changes to student loan law and policy occurred in 2022 that had important implications for borrowers, especially those working in public interest law.
On the legislative front, various bills were proposed in the 117th Congress to provide relief to borrowers while addressing the difficulties accompanying student loan forgiveness. However, Congressional gridlock on how best to address the student loan crisis often inhibited forward movement on most proposed bills. The following legislation involving student loan discharge was proposed in 117th U.S. Congress:
● The Joint Consolidation Loan Separation Act (S. 1098) allows consolidated federal student loans under a decades-old joint consolidation program to be separated, making over 14,000 individuals eligible to pursue PSLF. These jointly-consolidated loans are ineligible for PSLF, and this new legislation would permit them to separate loans with a special process for separating out loans for domestic violence and abuse victims. Under a loan consolidation program that ended in 2006, married couples where both were student loan borrowers could consolidate their loans into one account. However, no mechanism existed to separate the loans if the couples needed to, whether that was because they wanted to pursue a federal forgiveness program or because their marriage had ended. This legislation was passed with bipartisan support in the House and Senate and signed by President Biden on October 11, 2022.
● The Simplifying and Strengthening Public Service Loan Forgiveness Act (S. 4345) would shorten the length of the PSLF program from 120 months to 60 months while expanding the types of loans eligible for PSLF forgiveness. This legislation did not become law.
The Public Service Reward Act (H.R. 9097) was introduced with the intention of “Fulfilling the Promise of the Public Service Loan Forgiveness Program” to its borrowers and would have made significant changes to the structure of the PSLF program discharge process. In contrast with the current structure, which forgives the entire balance upon completion of 120 monthly qualifying payments, this legislation would forgive a portion of the balance every twelve months, culminating with total discharge at the end of 120 monthly payments. This legislation did not become law.
The Student Loan Accountability Act (S. 4253) would prohibit various agencies such as the Departments of Education, Justice, or the Treasury from taking any action to cancel or forgive the outstanding balances, or portion of balances, of covered loans. This would exempt programs in place before May 2022, allowing PSLF to remain but statutorily prohibiting the executive forgiveness via the Department of Education as promised by President Joe Biden when he was on the campaign trail. This legislation did not become law.
The Student Loan Relief Act (H.R. 4797) sought to establish a federal program to forgive up to $50,000 of outstanding student loan debt for each borrower. It also would have expressly excluded student loan forgiveness from taxable income while creating a one-year forbearance period for all borrowers to effectuate this program. This legislation did not become law.
In the executive branch, action by the Department of Education to temporarily expand PSLF and executive forgiveness by President Biden sought to provide relief to borrowers by creating greater opportunities for discharge.
Announced in 2021 by the Department of Education, the Limited Public Service Loan Forgiveness Waiver (the “limited waiver”) created limited-time changes to the PSLF program rules allowing borrowers to receive credit for past periods of repayment that would otherwise not qualify towards the 120 qualifying payments. However, some of the changes under the limited waiver expanded opportunity to receive credit for various types of payments that did not previously count including:
Credit for periods of repayment for federal loans under any type of repayment plan
Credit for past periods of payment prior to consolidation if you made payments on FFEL Program loans, Federal Perkins Loans, and other federal student loans and then consolidated your loans
Credit for past repayment periods regardless of whether the full amount of a payment was on time or whether you were on a qualifying repayment plan, with added flexibility in accepting late and lump sum payments
Credit for forbearance periods of 12 consecutive months or greater and 36 cumulative months or greater.
Credit for loans spent in deferment before 2013 or economic hardship deferment on or after January 1, 2013.
Discharge is permitted even if you are not currently employed by a qualifying employer at the time of discharge, as long as borrowers met all other criteria at the time of application.
Although the PSLF limited waiver ended on October 31, 2022, the Department of Education hopes that permanent rule changes announced the week before the limited waiver’s end will allow for improvements in PSLF that will broaden the ability of public servants to obtain relief. Some of the permanent changes to the PSLF program include the following:
The current rules for PSLF state that “borrowers “must make each of the 120 monthly payments within 15 days of the scheduled due date for the full scheduled installment amount for that payment to qualify toward PSLF.” The new rules will allow for late payments to count, including those that were made in lump sum or installments.
New rules will also “include certain periods of deferment or forbearance to count toward PSLF and to count payments made on underlying loans prior to consolidation,” a departure from current rules prohibiting payments from counting that were made prior to consolidation.
New rules will expand the definition of a qualifying employee to “include an individual who works as a contracted employee for a qualifying employer in a position or providing services which, under applicable state law, cannot be filled or provided by a direct employee of the qualifying employer.” Certain borrowers, such as public school adjunct professors and contractors for state agencies, will now have a higher likelihood of meeting eligibility requirements under this expanded definition of a qualifying employee.
All qualifying payments made on undergraduate student loans were previously reset to zero if consolidated with graduate student loans. Under the new rules, a weighted average will balance payments made on loans before consolidation and payments made after. For example, if a borrower had $100,000 in undergraduate student debt and made 60 qualifying payments and then took out $100,000 in law school loans, which they subsequently consolidated, the new rule would arrive at a weighted average of 30 qualifying payments made credited towards PSLF.
While additional rule changes may be added and existing rule changes clarified before the July 1, 2023 deadline, these set out a strong framework for expanding access to PSLF by public servants and lowering the incredibly high denial rate for borrowers applying for discharge.
Status of Executive Student Loan Forgiveness in 2023
In August of 2022, President Biden signed an executive order directing the Department of Education to provide $20,000 in cancellation to Pell Grant recipients on federal student loans and up to $10,000 in debt cancellation to borrowers who are not Pell Grant recipients. Borrowers must have individual income less than $125,000, with a $250,000 income cap for married couples. The Biden Administration’s executive order initially extended the payment moratorium until December 31, 2022, with payments anticipated to resume in January 2023.
Various legal challenges have resulted in a pause in executive student loan forgiveness. A six-state suit by Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina resulted in a stay on the executive student loan forgiveness by the U.S. Court of Appeals for the 8th Circuit. These states argued that the forgiveness would hurt state tax revenue due to the presence of state-based loan agencies in their states.[11] Additional challenges include a case out of the U.S. District Court for the Northern District of Texas, where borrowers who were ineligible for the forgiveness filed suit seeking judicial review of the forgiveness and vacatur of the program, which was granted and subsequently upheld by the U.S. Court of Appeals for the 5th Circuit.[12] With oral arguments in the consolidated cases scheduled for late February 2023, the Supreme Court’s decision will determine the ability of Biden’s executive forgiveness program to move forward and provide relief to millions of Americans with student loan debt. Amidst these legal challenges, the Biden administration has extended the payment moratorium to either sixty days after June 30 or sixty days after a Supreme Court decision, whichever comes first. With payments resuming possibly as late as August 30, further changes to student law and policy may come from the executive branch contingent upon the outcome of the pending Supreme Court case.
The Consequence of Current Student Loan Issues for Public Servants in the Legal Profession
The PSLF program and other opportunities for loan forgiveness are important in ensuring that talented legal professionals can get student loan relief while giving back to their communities through public interest law. While full-time public service work is an incredibly rewarding way to give back to the community, pursuing a career in public interest law can curtail the ability of legal professionals to make the high salary often associated with lawyers as they still face educational debt commensurate with their private practice counterparts. According to a recent study, the median salary for a law school graduate from the Class of 2020 in a public interest job ten months after graduation was $55,000 yearly, compared to $130,000 yearly for private practitioners.[13]
Borrower forgiveness programs for public interest attorneys also benefit the nonprofits and government employers they work for. Incentivizing work in public interest law by providing an avenue for debt forgiveness means that talented legal professionals with large debt balances have a greater incentive to work a PSLF-eligible job, deepening the talent pool for employers. These programs can also increase diversity in the public interest workforce, with first-generation, low-income, and non-white borrowers often having higher loan balances that may make them more inclined to pursue a ten-year forgiveness plan while also being able to give back to their community. Effective discharge programs for public interest professionals provide much-deserved relief and attract other service-oriented borrowers to join in that work, which benefits everyone from practitioners to employers to the communities they serve.
Public interest legal professionals are the backbone of the legal profession. Often forfeiting higher pay to do meaningful and necessary work, public interest lawyers across the country have an additional incentive to work with government and nonprofit employers by having programs that subsidize their employment by rewarding them for giving back. Ensuring that public interest legal professionals are taken care of as our country works to resolve the crisis of student loan debt and higher education costs is key to maintaining a strong public interest workforce and, in turn, a strong legal profession that cares about full-time public service.
Other Info on Student Loans
Last year, Legal Aid Society hosted a federal student loan clinic on October 27, 2022 to help borrowers navigate the Public Service Loan Forgiveness Limited Waiver application due on October 31, 2022. In addition to helping community members, the clinic also advised several public interest legal professionals on navigating the paperwork required for PSLF discharge. To keep up to date on future events, make sure to follow Legal Aid Society on Facebook and subscribe to our newsletter at https://yourlegalaid.org/newsletter-sign-up.
Check out an article from the March 2022 Bar Briefs on the impact of student loan discharge in bankruptcy.
About Brian
Brian Fields is a 2022 graduate of the University of Louisville Brandeis School of Law and a staff attorney at Legal Aid Society in the Economic Stability Unit, where his practice areas include debt defense, consumer advocacy, bankruptcy, tax, and expungement law. He welcomes correspondence and can be reached at bfields@yourlegalaid.org.
[1] Melanie Hanson, Student Loan Debt Statistics, Education Data Initiative, Oct. 26, 2022, https://educationdata.org/student-loan-debt-statistics.
[2] Id.
[3] Id.
[4] Richard Fry, First-Generation College Graduates Lag Behind Their Peers on Key Economic Outcomes, Business Insider, May 18, 2021, https://www.pewresearch.org/social-trends/2021/05/18/first-generation-college-graduates-lag-behind-their-peers-on-key-economic-outcomes/.
[5] Public Service Loan Forgiveness Data, Federal Student Aid, https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data.
[6] 34 CFR § 685.219
[7] 34 CFR § 685.219
[8] Melanie Hanson, Student Loan Forgiveness Statistics, Education Data Initiative, Jan. 1, 2022, https://educationdata.org/student-loan-forgiveness-statistics.
[9] Id.
[10] Am. Bar Ass’n v. United States Dep’t of Educ., No. 19-5213, 2020 WL 1487734 (D.C. Cir. February 24, 2020).
[11] State of Nebraska, et al. v. Joseph Biden Jr., et al. Nebraska v. Biden, No. 4:22CV1040 HEA, 2022 WL 11728905 (E.D. Mo. October 20, 2022), cert. granted before judgment, 143 S. Ct. 477 (2022).
[12] Brown v. U.S. Dep’t of Educ., No. 4:22-CV-0908-P, 2022 WL 16858525 (N.D. Tex. November 10, 2022), cert. granted before judgment sub nom. Dep’t of Educ. v. Brown, No. 22-535, 2022 WL 17574107 (U.S. December 12, 2022).
[13] FACT SHEET: PSLF AND PUBLIC INTEREST LAW, AccessLex, https://www.accesslex.org/sites/default/files/2022-01/AL_OneSheet_FactSheet_PSLF_PublicInterestLaw_012022_0.pdf